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MUMBAI : Both financial and operational creditors must be treated with fairness in resolution plans to take over bankrupt companies, Justice S.J. Mukhopadhaya, chairperson of the National Company Law Appellate Tribunal (NCLAT), has said.

The NCLAT is the appellate tribunal for hearing appeals against orders passed by bankruptcy courts under Section 61 of the Insolvency and Bankruptcy Code. “Operational creditors cannot be discriminated against and financial creditors cannot act like selfish cells. These cells are what cause cancer," he said. This has bearing on the Essar Steel India Ltd resolution, the biggest so far under IBC, where operational creditors and suppliers to the bankrupt steel mill are battling with Essar Steel’s financial creditors for a larger portion of the settlement amount.

Mukhopadhaya was speaking at an event organized by National e-Governance Services Ltd in Mumbai on Saturday. NCLAT, headed by Justice Mukhopadhyaya, is hearing a host of petitions related to the Essar Steel bankruptcy resolution case.

“I can understand that operational creditors are smaller, but it does not mean there is nothing for them (in a resolution plan). The NCLAT has a duty to operational creditors to give them the same treatment. It may not be the same amount of money, but the same treatment," Justice Mukhopadhyaya said. “The question then arises in the case of Essar Steel, how much should we give. When the resolution applicants were coming (to bid for the asset), they (the operational creditors) were the ones giving money all the time (as supplies on credit) while the financial creditors were not giving money. The operational creditors have kept it as a going concern, and (now) the fruit should only go to financial creditors?"

“The financial creditors say I am secured, you (the operational creditors) are unsecured; your money is small and I’m the big dada. (But) this way, you will make the operational creditors go insolvent. We have to keep the operational creditors alive in the future. This (IBC) is the law for the present and future. Whatever a financial creditor gets from a resolution is a gain, not a haircut. If a company continues as a going concern, your (the banks’) money will grow and the suppliers’ business will grow. There should not be discrimination under the law," Justice Mukhopadhyaya said.

The Essar Steel case pertains to a 10mtpa steel mill in Gujarat which became insolvent in August 2017, with dues of over 54,000 crore. The highest bidder for the asset is global steel giant ArcelorMittal, which has offered a resolution plan with a cash payout of 42,000 crore, to be distributed between a clutch of financial and operational creditors.


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